Sunday, November 20, 2011

The Crises of Democratic Capitalism

A former student of Jurgen Habermas, Wolfgang Streeck, has an important new article in the New Left Review, entitled "The Crises of Democratic Capitalism." It describes the ineluctable contradiction between two principles of allocation under democratic capitalism: the democratic, which proposes that society's resources be distributed, first and foremost, on the basis fo social rights to various benefits we have become familiar with under so-called "welfare states," on the one hand; and the capitalistic, which argues that society's resources should be allocated on the basis of individuals' contributions to marginal productivity, as evaluated by the market, on the other.

For decades, Streeck argues, the contradictions between these two modes have been papered over by various political tricks, but these tricks have finally run out as of 2008, and now the question lies nakedly before us whether the system is going to be run according to democratic principles to protect the economically marginal, or for the benefit of economic powerholders. He enlarges on this:
In the four decades since the end of post-war growth, the epicentre of the tectonic tension within democratic capitalism has migrated from one institutional location to the next, giving rise to a sequence of different but systematically related economic disturbances. In the 1970s the conflict between democratic claims for social justice and capitalist demands for distribution by marginal productivity, or ‘economic justice’, played itself out primarily in national labour markets, where trade-union wage pressure under politically guaranteed full employment caused accelerating inflation. When what was, in effect, redistribution by debasement of the currency became economically unsustainable, forcing governments to put an end to it at high political risk, the conflict re-emerged in the electoral arena. Here it gave rise to growing disparity between public spending and public revenues and, as a consequence, to rapidly rising public debt, in response to voter demands for benefits and services in excess of what a democratic-capitalist economy could be made to hand over to its ‘tax state.’
When efforts to rein in public debt became unavoidable, however, they had to be accompanied for the sake of social peace by financial deregulation, easing access to private credit, as an alternative route to accommodating normatively and politically powerful demands of citizens for security and prosperity. This, too, lasted not much longer than a decade until the global economy almost faltered under the burden of unrealistic promises of future payment for present consumption and investment, licensed by governments in compensation for fiscal austerity. Since then, the clash between popular ideas of social justice and economic insistence on market justice has once again changed sites, re-emerging this time in international capital markets and the complex contests currently taking place between financial institutions and electorates, governments, states and international organizations. Now the issue is how far states can go in imposing the property rights and profit expectations of the markets on their citizens, while avoiding having to declare bankruptcy and protecting what may still remain of their democratic legitimacy.
I have two critiques of the the piece. First, it isn't as sharp as it might be on how an ideology of endless growth was was the key point of conjunction between the democrats and the capitalists, in that it allowed all parties to imagine that politics could center on splitting the marginal extras rather than on redistribution as such. If you believe that we are in an era where growth maybe has gone away (or can no longer be presumed), then we're back to zero-ish-sum political-economics games, and the politics of such games are far nastier than the politics of splitting a growing pie.

The second critique is more fundamental, and that is that the piece sets up a too-neat division between the two poles he is describing. It ignores that the neoliberal economic order is not actually a "free market," but rather one in which the government very much takes an active role in shaping and controlling market outcomes — in favor of incumbents and the rich. In other words, Streeck takes too seriously the neoliberal claim that the political economic order of the last forty years has moved us toward a Hayekian model of "deregulation" and non-interference in the pure workings of the capital markets. In fact, the real political economy of the last 30 years has involved massive government interventions in markets in favor of the capitalists. A Hayekian world would be better than the crony capitalist one we actually have. In other words, we don't have a deregulated market (in housing, finance, energy, what have you); we have a market characterized by regulatory capture.

To see the difference, just look at what was happening three years ago. Whatever you think of the wisdom (political or economic) of the bailout of the big financial firms and automakers, it certainly was not the case that the government didn't manage the market. This is exactly what so infuriated the true believers on the right about the bailouts — it was naked government interference in the market, a clear violation of their ideological principles. For the left, on the other hand, it showed that the rhetoric of market discipline had been class-warfare malarky all along: something that only applied to poor people, not to capitalists. And for the last three years, the neoliberal technocrats have tried to sweep this naked emperor back under his rug: nothing to see here, move right along.

Hat tip: MC.